When it comes to the biotech sector, many stocks that trade under $5/share are considered to be very speculative, and as a result I wanted to focus on two that could benefit from developments within their specific markets. In this article I've chosen two companies that have met the follow criteria:
- Each company must trade below $5/share
- Each company must have a Market Cap under $200 million
- Each company must have announced significant strides in in the last 24 hours
Prana Biotechnology Ltd. (PRAN) which is based in Parkville, Australia engages "in the research and development of therapeutic drugs for the treatment of neurological disorders in Australia. The company primarily focuses on the Alzheimer's, Parkinson's, and Huntington's diseases, as well as various cancer, age-related macular degeneration and cataract, Motor Neuron, and Creutzfeldt-Jakob diseases". (Yahoo! Finance)
From a fundamental perspective shares of Prana currently carry a market cap of $72 million, have traded up 50.13% since July 1st and are currently trading at a 3.69% discount to their 50 DMA and at a 16.17% premium to their 200 DMA.
PRAN data by YCharts
On December 13th it was announced that the Journal of Huntington's Disease has published data showing the benefits of its experimental drug PBT2, for the treatment of Huntington's Disease. The results highlight PBT2's ability to inhibit the development of the symptoms and pathological features of the disease in animal models. The drug is currently being tested on patients in 20 sites across the USA and Australia, with results expected in Q2 of 2013.
Investors should also note that "PBT2 has markedly reduced neuro-based degeneration, significantly increased lifespan and improved motor function and coordination in an aggressive animal model of the disease," said lead author and Head of Research at Prana, Associate Professor Robert Cherny. If Prana can continue to demonstrate significant strides, especially in terms of the reduction of neuro-based degeneration with regard to PBT2, in both the US and Australia, I see no reason why a small to moderate sized position should not be established at current levels.
Cerus Corp. (CERS) which is based in Concord, California is "a biomedical products company that focuses on developing and commercializing the INTERCEPT Blood System to enhance blood safety. The company's INTERCEPT Blood System is based on its proprietary technology for controlling biological replication and is designed to target and inactivate blood-borne pathogens". (Yahoo! Finance)
Fundamentally speaking shares of Cerus currently carry a market cap of $184 million, have traded down 3.52% since July 1st and are currently trading at a 6.61% premium to their 50 DMA and at a 1.78% premium to their 200 DMA.
CERS data by YCharts
On December 13th Cerus announced that the FDA has accepted its proposed modular Premarket Approval application shell - an outline of the application process defining the structure, content and timing of each module - for review of its Intercept Blood System for plasma. The agency's approval of a shell was required prior to initiation of a modular PMA submission, thus enabling CERS to proceed with an application that addresses multiple indications of plasma use for the system.
In my opinion, this first step is going to be a key catalyst in the initiation of clinical trials for the company's Intercept Blood System. If Cerus can continue to show signs of positive progress with regard to its Intercept Blood System, this may indeed be the time to establish a position in the company.
Are there any negative catalysts potential investors should consider before establishing a position in either company? As is the case with any biotech company, potential investors need to keep in mind some of the negative catalysts that go hand-in-hand with both Prana and Cerus. On one hand, any negative indication by the FDA with regard to Prana's PBT2 or Cerus's Intercept Blood System program could result in the sell-off of either stock. On the other hand, weaker than expected earnings at any point over the course of the next 12-18 months, could also send shares down an unfavorable path.
For potential investors looking to establish a position in either Prana or Cerus, I'd take a closer look at each company and keep in mind the primary positive and negative catalysts moving forward. Given the fact that both companies are making considerable strides I'd look to establish a small to medium position at current levels and add to that position once future developments are announced.